Which of these best describes risk pooling?1 pointSick people are more likely to sign up for health insurance, and healthy people will not purchase the policy because this will make the premium more expensiveIf individual events are independent, risk can be decreased by averaging across all of the eventsIf individual events are not independent, risk can be decreased by averaging across all of the eventsInsurance companies must avoid situations whereby customers are incentivized to intentionally cause an incident (e.g. burning their house down)
Question
Which of these best describes risk pooling?1 pointSick people are more likely to sign up for health insurance, and healthy people will not purchase the policy because this will make the premium more expensiveIf individual events are independent, risk can be decreased by averaging across all of the eventsIf individual events are not independent, risk can be decreased by averaging across all of the eventsInsurance companies must avoid situations whereby customers are incentivized to intentionally cause an incident (e.g. burning their house down)
Solution
The best description for risk pooling is: "If individual events are independent, risk can be decreased by averaging across all of the events". Risk pooling is a practice used by insurance companies to spread financial risks among many stakeholders to reduce the damage of potential loss to any individual stakeholder. It's based on the law of large numbers which states that as the number of exposure units increases, the actual results are increasingly likely to become close to expected results. So, if the risk events are independent, by averaging across all events, the risk can be decreased.
Similar Questions
Question 1Which of these best describes risk pooling?
What are the two general kinds of intermediaries that do risk-pooling in the US healthcare system? Describe at least one important difference between them.
Which factor would most likely increase the risk of being underinsured?A.Having a low limit of liabilityB.Purchasing the maximum coverageC.Reducing the number of policy exclusionsD.Having a history of making claims in the pastSUBMITarrow_backPREVIOUS
Risk _____ refers to reducing the impact of a risk event by reducing the probability of its occurrence
Multiple Select QuestionSelect all that applyWhat are the drawbacks in using insurance to transfer risk?Multiple select question.Insurance is often costlyIt may be difficult to explain the risk and its consequences to an insurance broker.It is difficult to insure low-probability and high-consequence risk events.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.